A mortgage is a long-term loan secured by real estate. The property serves as collateral. If the borrower fails to repay, the lender can foreclose and sell the property to recover the debt. Mortgages make homeownership possible for people who cannot pay cash. They are also one of the largest sources of household debt in many countries.

Mortgages come in several types. Fixed-rate mortgages keep the same interest rate for the life of the loan, usually 15 or 30 years. Adjustable-rate mortgages start lower but reset periodically based on market rates. Interest-only mortgages let borrowers pay only interest for a set period, then require principal payments. Government-backed loans, like FHA and VA loans in the United States, offer lower down payments and easier qualification.

The terms matter enormously. A 30-year fixed mortgage at 4 percent costs far less per month than the same loan at 7 percent. Over the life of the loan, the difference can reach hundreds of thousands of dollars. Down payments, closing costs, and property taxes add to the total. Borrowers should compare offers from multiple lenders. A mortgage is a long commitment. Getting it wrong is expensive to fix.

Common types

• Fixed-rate mortgage
• Adjustable-rate mortgage
• Interest-only mortgage
• FHA and VA loans
• Jumbo loans